Nick Leeson, the bank's then 28-year-old head of derivatives in Singapore, gambled more than $1 billion in unhedged, unauthorized speculative trades, an amount which dwarfed the venerable merchant bank's cash reserves.
Through manipulating internal accounting systems, Leeson was able to misrepresent his losses and falsify trading records. ACA Compliance Chief Services Officer Carlo di Florio, a former senior executive at both FINRA and the U.S. Securities and Exchange Commission , said this convergence of duties was tantamount having "the fox guarding the hen house."
"Today, if you had a Nick Leeson on a trading desk, there would be trade surveillance systems with a whole bunch of triggers continuously looking at what kind of activity he is engaged in, and red flagging anything that seems potentially violative of internal policies or regulatory requirements" di Florio explained.
Bank capital should cover UNEXPECTED losses, like caused by rogue traders, surprise lowering of credit ratings or coronavirus. Current capital requirements are based on EXPECTED credit losses, as perceived by human fallible credit rating agencies. Loony!🤢
'I, Nicholas Leeson have lost 50 million quid in one day!'